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Are Apple Inc. and Alphabet Inc. Headed For a VR Headset War?

Will the two mobile rivals launch rival virtual reality headsets?

Apple(NASDAQ:AAPL) and Alphabet's Android (NASDAQ:GOOG)(NASDAQ:GOOGL) have been fierce rivals in mobile devices, but that rivalry could soon extend to augmented and virtual reality headsets.

Apple's recent purchases of AR/VR firms Metaio, Faceshift, Emotient, and Flyby Media all suggest that it is developing its own headset. A recent Financial Times report claims that Apple's "secret" AR/VR team has already designed prototype headsets which resemble Microsoft's HoloLens and Facebook's (NASDAQ:FB) Oculus Rift. Apple also recently hired Doug Bowman, a former Virginia Tech computer science professor who is considered one of the leading VR experts in the country.

Source: Apple, Pixabay.

Google is reportedly developing a stand-alone VR headset which won't require a phone, computer, or gaming console, according to the Wall Street Journal. Google also plans to launch a more advanced plastic version of its Cardboard viewer which is equipped with computer chips and sensors. Last month, Google named Clay Bavor, the creator of Cardboard, as its first VR chief.

Let's compare Apple and Google's approaches to the fledgling VR market, and how their devices could impact Facebook, Sony, Samsung, and HTC's VR plans.

Why Apple needs a VR headsetApple is likely developing a VR headset to diversify its business away from the iPhone, which generated 68% of its first quarter revenue. Total shipments only inched up 0.4% annually during the quarter, and will likely fall in the second quarter.

Apple has only dabbled in AR and VR in the past. The company launched a VR music video starring U2 in its "Experience Buses" last November, which let fans experience the video on Oculus headsets and Beats headphones. iPhones are also compatible with Google Cardboard and Mattel's new VR View-Master. But until now, it wasn't clear how Apple planned to directly profit from the growth of the AR and VR markets.

Mattel's VR View-Master for the iPhone. Source: Apple.

If the reports about a dedicated headset are accurate, Apple will probably enter the market in the same way it did with smartwatches -- with a product which only arrives after first movers reveal the market's strengths and weaknesses. As with the Apple Watch, Apple will likely rely on its brand and ecosystem strength to capture a piece of the market and expand its mainstream appeal.

However, it's unlikely that an iOS-based Apple VR headset will compete directly against the PC-tethered Oculus Rift, PS4-based PlayStation VR, or Android-based headsets like the Gear VR. Instead, it will likely be sold as a peripheral for the iPhone to support sales of next-gen iPhones. The device might also be synced to the Apple Watch to track hand movements, or connect to the Apple TV for VR media or gaming experiences.

Why Google needs a VR headsetMeanwhile, it's less clear why Google would create its own stand-alone headset. After all, Android-powered smartphones can already be converted into VR headsets with Cardboard or other similar products. However, the VR experiences on these devices still pale in comparison to Facebook's Oculus Rift.

Facebook's Oculus Home ecosystem also represents a direct threat to Google's future in VR. Oculus Home, which was introduced last year, is a VR store that lets users buy games, videos, and experiences directly from the Rift. Samsung, the largest Android device manufacturer in the world, already tethered its $99 Gear VR headset to Oculus Home. This indicates that Samsung -- which has repeatedly tried to reduce its dependence on Google's ecosystem -- prefers to be tethered to Facebook instead of Google. If other Android OEMs follow Samsung's lead, Oculus Home could become the VR equivalent of Google Play and cut Google out of the loop.

Facebook's Oculus Rift. Source: Company website.

Faced with these two challenges, it would be logical for Google to produce a high-end VR headset locked into a dedicated Google Play Store for VR devices. That storefront could challenge Oculus Home and discourage Android OEMs from following Samsung into Facebook's backyard. Not much is known about Google's headset, but the Journal reports that the headset will track a user's motion with outward-facing cameras instead of synchronizing with a smartphone, PC, or console.

Who will win the VR war?I expect the upcoming VR battle to split the market along platform lines this year. Facebook and HTC/Valve will clash on the PC front, Sony will prevent other VR headsets from connecting to the PS4, and Microsoft will connect the HoloLens to Windows 10 PCs and Xbox Ones.

Apple's entrance into the VR market will probably resemble Sony's -- a dedicated play to strengthen its own hardware and software ecosystem. Google will likely enter the market to prevent Facebook from taking over Android devices with its Oculus Home ecosystem. If Apple's VR headset is a hit, it can diversify its top line while casting a "halo effect" on sales of other iOS devices. If Google's sells well, it can prevent Facebook from disrupting its mobile ecosystem with VR apps.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Author

Leo is a Tech and Consumer Goods Specialist who has covered the crossroads of Wall Street and Silicon Valley since 2012. His wheelhouse includes cloud, IoT, analytics, telecom, and gaming related businesses. Follow him on Twitter for more updates!